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Tata Sons Ltd is considering various options on the future of its airline venture AirAsia India against the backdrop of its Malaysian partner planning to exit it, two people in the know said.

This comes at a time when the Tatas are facing the uphill task of gathering funds to buy out the 18.4% stake that Shapoorji Pallonji Group owns in the Tata group holding firm.

The Tata group, which has the first right of refusal for the 49% stake held by Tony Fernandes-owned AirAsia Bhd in the Indian airline, is weighing at least three alternatives, said the people cited above.

These are the Mumbai-based conglomerate purchasing AirAsia Bhd’s entire stake in the Indian venture or ushering in a strong new investor such as a private equity firm or a sovereign wealth fund to purchase AirAsia Bhd’s stake, they said. There is also the option of bringing in a strategic player that would acquire the entire stake of Tata group and AirAsia Bhd in the loss-making Indian airline, the people cited above said on condition of anonymity.

“Other options like a merger of the businesses of AirAsia and Vistara (a 51:49 joint venture between Tata Sons and Singapore Airlines) have also been considered. However, this may be tricky because Vistara is well-capitalized and merging AirAsia India’s business during a downturn may suddenly weaken the merged entity’s financials, and cause more funding requirements, increase fixed costs and so on. This may not be desirable to Singapore Airlines," one of the two people said.

The second person said Tata group is reluctant to deploy funds to buy out AirAsia Bhd’s stake as it is facing the mammoth task of arranging capital to buy out Shapoorji Pallonji Group in Tata Sons, estimated at about 1.6 trillion.

AirAsia India, which is owned 51% by the Tata group, has never recorded a net profit since its inception in 2014. Meanwhile, AirAsia Bhd, which is facing headwinds due to the disruptions to the global air travel market from covid, had in June approached Tata group to sell its stake, as mandated by the terms of the joint venture pact under which Tata Sons has the right of first refusal, Mint reported earlier.

AirAsia India also ran into other turbulence over the years. In 2018, the Central Bureau of Investigation began probing allegations of bribery and corruption against AirAsia India, and some of its top executives, including Fernandes, over key changes in India’s civil aviation policy that were allegedly aimed at benefiting the airline.

AirAsia Bhd’s reluctance to add fresh equity into AirAsia India has further set the tone for the future.

Business Standard on Tuesday stated Tata group and AirAsia Bhd are discussing the latter’s exit from AirAsia India on the backdrop of the Malaysian airline getting a $54 million firm offer for its stake from a foreign fund.

A Tata group spokesperson declined to comment. AirAsia Bhd didn’t respond to emailed queries.

“It will be difficult to get someone, be it airlines, funds or other corporates, to pick up AirAsia Bhd’s stake in AirAsia India as the current environment is not very conducive," said Nripendra Singh, industry principal, aerospace, defence and security practice at Frost and Sullivan. “Nobody would want to wait for a few years for air passenger traffic to return to 2019 levels. So, debt restructuring will probably be a good way to stabilize the airline.

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